Intangible assets can provide a competitive advantage to businesses by providing an exclusive right to use certain assets that can be essential to a company’s success.

These assets can be either created internally or acquired from another company. Intangible assets include patents, brands, trademarks, and copyrights. These assets can be indefinite, such as a brand name, or definite, such as a legal agreement.

While intangible assets are essential to a company’s success, they do not appear on the balance sheet and have no recorded book value.

In order to audit intangible assets, the auditor must consider all the evidence and determine the value of the asset. This includes a review of the legal documents, contracts, financial statements, and other information related to the asset. Additionally, the auditor must verify that the asset is properly accounted for and that any potential liabilities associated with the asset are also considered. The auditor should also consider any market factors that can affect the value of the asset.

Audit Risk

The assessment of possible financial losses associated with intangible investments requires the meticulous consideration of potential risks. Audit risk is a major concern for auditors when assessing the value of intangible assets, as these assets are not easily measured in terms of their worth.

To reduce audit risk, an auditor must assess and evaluate the potential risks involved in the evaluation of intangible assets. This should include:

• Valuation of intangible assets using accurate and reliable estimates
• Impairment testing to assess future cash flows
• Verification of the existence and ownership of intangible assets
• A comprehensive risk assessment to identify any potential threats

Auditors must take into account the complexities of intangible assets and the potential risks associated with them. They must also apply appropriate audit procedures to gain assurance that the financial statements are a true and fair reflection of the financial position of the entity.

Overall, a thorough and responsible audit of intangible assets is essential in order to detect any potential risks and ensure accuracy in the reported financial data.

Internal Control

Effective internal control is essential to ensure the accuracy and reliability of intangible asset valuation. Approvals, authorizations, and documentations are key control activities for intangible assets, and a review of the policies, procedures, and systems in place to control such assets should be conducted.

Substantive procedures such as inspection, observation, and confirmation can then be used to test the operating effectiveness of these controls. It is important to evaluate and document the results of the control tests.

Internal control can be used to mitigate the risks associated with incorrect intangible asset valuations, which is essential for an effective audit procedure for intangible assets.

Audit Assertion

Auditors must make assertions about the existence, completeness, accuracy, and valuation of intangible assets when performing the audit. In order to provide assurance, the auditor must obtain evidence to support the assertions.

This evidence should include documents, such as legal ownership or contractual rights, to verify the control of intangible assets. Additionally, the auditor must assess the cost of the intangible asset and determine if it has been recorded accurately and amortized correctly.

Impairment losses must also be tested for and any losses recognized. Finally, the auditor must review the presentation and disclosure of intangible assets in accordance with IFRS and confirm that the related disclosures are sufficient.

Audit Procedure

In order to provide assurance, the auditor must conduct a range of procedures to verify the existence, completeness, accuracy, and valuation of intangible assets. These procedures may include:

• Requesting written confirmation from third parties to confirm existence and ownership of intangible assets
• Physically inspecting intangible assets to verify existence and ownership
• Performing analytical procedures to compare intangible asset balances to industry norms and other relevant data
• Reviewing contracts and legal documents related to intangible assets to verify rights and obligations

Furthermore, the auditor must also perform procedures to verify proper valuation and allocation of intangible assets as well as impairment tests by reviewing carrying value and estimating future cash flows. In this way, the auditor can ensure that all intangible assets are accurately and fairly represented in the financial statements.

Conclusion

The audit procedure for intangible assets should be conducted with due care and consideration of the associated audit risk and internal control.

It is essential for the auditor to assess the accuracy of the assertions made by the management regarding intangible assets by performing audit procedures that are designed to identify any material misstatements.

By doing so, the auditor can obtain sufficient and appropriate evidence that the assertions made by the management are true and accurate.

Ultimately, this will enable the auditor to form an opinion about the accuracy of the financial statement disclosures related to intangible assets.

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